Another way to catch tax cheaters

July 22, 1983

It is unlikely that the 10 percent tax withholding on interest and dividend payments that was to have taken effect this summer will be enacted in the present legislative setting. Earlier this year the Senate, by a resounding 86-4 vote, repealed a 1982 law mandating withholding. That followed an equally decisive 382-41 vote in the House. In other words, lawmakers were hearing from their constituents back home. And what they were hearing was that the withholding provision - however well-intentioned - was highly unpopular.

In now hammering out legislation that would have the effect of killing withholding once and for all, Senate and House conferees are merely ratifying the inevitable. Withholding is a dead issue for now. Therefore the Reagan administration will have to bolster Internal Revenue Service compliance requirements if the US Treasury is to to recoup some of the $13 billion or so that is believed to be lost through underreporting - or nonreporting - of interest and dividend payments.

Placing the emphasis on compliance is hardly a novel idea. Opponents of withholding had argued that such a course was necessary right from the outset of the withholding debate. And better compliance is possible because tax collection is largely computerized, with the IRS increasingly able to compare interest and dividend forms filed by financial institutions with individual tax returns. As Congress goes about drafting new compliance provisions, it should make them as tough as possible. At the least the new standards should include:

* Requiring severe fines and penalties for proven nonpayment of such taxes.

* Requiring that individuals receiving Form 1099s from financial institutions (the forms telling taxpayers what they have earned in interest and dividend payments) be attached to individual tax forms filed with the IRS.

* Adding as many new IRS agents as are appropriate to cross-check Form 1099s and tax returns.

The issue in the tax withholding debate was never one of penalizing honest taxpayers. It has always been that of ensuring that those few Americans who do not pay their fair share of taxes - amounting to billions of dollars in lost revenue - are required to do so. Failure to crack down on dishonest taxpayers makes honest taxpayers bear a disproportionate share of the cost of American government.

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